A few decades ago, retirement planning was entirely about theemployer. Defined benefits and pension plans were the norm, andmost workers could expect to live well — or, at the very least,adequately — in retirement.

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But more recently, the tide has changed. Much more emphasis hasbeen placed on the employee’s role in their retirement plan. Thesedays, employees are contributing to their plan, adjusting theirsavings amounts, and even choosing which funds to invest in. Asemployees take charge of their own retirements and youngergenerations learn from the mistakes of baby boomers, the industryhas no choice but to adapt to the next generation of retirementplans.

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Where we stand

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Elaine Sarsynski, executive vice president of MassMutual'sRetirement Services Division and chairman and CEO, MassMutualInternational, said the retirement industry is more important nowthan it ever has been.

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“Because of the stress on Social Security, we know that overtime Social Security may not be funded appropriately for Gen X, GenY, and even baby boomers on the tail end,” she said. “Americansmore than ever need the industry because advice and education isparamount right now for our participants.”

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“The industry is still very robust,” said Skip Schweiss,president of TD Ameritrade Trust company. “I think there was alittle bit of panic that set in about the retirement industrybecause when the market crashed, people’s 401(k)’s crashed. But alot of that has kind of faded.”

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Now that the panic has subsided, Schweiss added, participantsstill see 401(k)s as their primary retirement savings vehicles.

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But the plans have changed over the years. One of the biggestchanges to 401(k)s recently is the addition of auto-features — autoenrollment and auto escalation.

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“These features were put in place in response to the lowerparticipation rates we’ve had in the past several years,” saidJennifer Kiesewetter, an employee benefits attorney at theKiesewetter Law Firm in Memphis, Tenn. “Also, it helps ouryounger workforce start thinking about retirement earlier.”

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Kiesewetter, who also teaches employee benefits at theUniversity of Memphis School of Law, added that, withoutauto-enrollment features, many younger employees would put offcontributing to their retirement plans until they were in theirlate 30s, this has a detrimental effect on their ability to retiresuccessfully.

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“A lot of employers don’t take advantage of auto featuresbecause of the costs involved,” said Beth McHugh, vice president ofmarket insight and a 401(k) executive at Fidelity. “But we try totalk to plan sponsors and encourage them to take the longview.”

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McHugh said that employers who use auto-enrollment have very fewemployees opt-out of the plan.

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Investment strategies and 401(k) trends

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One of the biggest changes for 401(k)s recently is the newinvestment options, which allow employees to take a more activerole in their retirement.

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“We’ve seen a shift over the years from really just a focus onmutual funds to more focus on things like collective funds, whichtraditionally have only been accessible by the large plans,”Schweiss said. “Those have come down market to the smallerplans.”

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McHugh said that many plan sponsors are taking a more tieredapproach to investments, where a different set of investments mightbe offered for more sophisticated investors. However, there isn’tvery high utilization of those options.

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Another seemingly hot product that hasn’t received a very highresponse, according to McHugh, is the annuitization of 401(k)s.

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“Annuities aren’t for everyone,” she said. “It’s really based onthe individual’s situation, and there are opportunities for peopleto purchase them outside of their employer’s plan.”

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Some companies, like Ameritrade, are now offering ETFs in their401(k) plans, and Schweiss said there has been a lot of demand forthe product. Some ETFs can even be accessed free of transactioncharges.

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Schweiss said the interest is probably due to a number offactors; low expenses, the ability to create a custom plan, etc.But the biggest draw, he thinks, is the ability for employees tohave more control.

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“It’s a double-edged sword,” he said. “I think it’s a greatthing that employees can take control over their investments andtheir retirement destiny, but it does come with a need for greatereducation.”

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The importance of education

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For Dave Pitts, manager in the Actuarial and Benefits ConsultingPractice at Lurie Besikof Lapidus & Co., education is key tomaking the new model of retirement savings work.

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“We’ve shifted over the last 50 yeas from primarilyemployer-provided retirement to primarily employee-providedretirement,” he said. “Employees are not going to be assophisticated as a CEO in how to make smart investment allocations,so there needs to be expanded education in how to make smartinvestment in your 401k, how to really be your own fiduciary.That’s a lot to ask of the average participant, but that’s wherewe’re going with the american retirement system.”

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Sarsynski agreed; she said the No. 1 focus in the next few yearsshouldn’t be on new products or investment strategies, but ondiscovering new, better ways to educate participants.

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“The most important thing today in our industry today isswitching the conversation to one of plan health and how we canensure that participants have sufficient income in retirement,” shesaid.

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Regulatory changes ahead

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With all the new investment strategies and shifting focus toemployee-driven retirement, several new regulations are in theworks to help ensure that participants and their investments areprotected.

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The first two center around providing more disclosure, both ofplan-related information and of investment-related information. Theregulations go into effect in early 2012. Schweiss said theregulations were very detailed and not particularlycontroversial.

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“I think this is a great leap forward so that plan participantswill have a better idea of what they’re getting in they’re plan andwhat they’re paying for,” he said. “Because there are some plansponsors that do a great job of hiding those fees or making theminvisible.”

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The other two regulations, however, are not so easily accepted.The first, which would expand the definition of fiduciary, wouldhave a substantial impact on the industry. Another, the retirementplan advice rule, would change how advisors are able to give adviceto plan sponsors. The final rulings haven’t been made yet, but bothwould have major impacts on the retirement industry, IRAs, and401(k)s.

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There are also some new product regulations that have beendiscussed, Kiesewetter said. One allows a kind of hybrid plan,which provides both 401(k) benefits and defined benefit planbenefits, to exist. The IRS recently released guidance on thisplan, Kiesewetter said, so sample plan documents are just startingto emerge.

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There’s also the automatic IRA bill, which allows employees whodon’t have access to any type of 401(k) to enroll into an IRA; theemployer will auto-hold a portion of the employee’s paycheck andcontribute to an IRA on their behalf.

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“They’re hoping it will fill the gap for small employers whocan’t afford the 401(k) plans for an administrative standpoint, andstill allow their employees to save for retirement,” Kiesewettersaid.

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As employees take control of their retirement, investmentsbecome more employee-friendly, and regulatory changes provide moretransparency and perhaps drive costs down, there is no doubt thatthe retirement industry is constantly evolving. The question is,are you evolving with it?

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